On December 16, 2020, Aphria Inc. (TSX: APHA and Nasdaq: APHA) announced a merger with Tilray, Inc. (Nasdaq: TLRY), creating the world’s largest cannabis company. The two Canadian companies combined have an equity value of $3.9 billion.
Following the news of the merger, Tilray’s stock rose more than 21% the same day. Once the reverse-merger is finalized, Aphria shareholders will own 62% of the outstanding Tilray shares. That is a premium of 23% based on share price at market close on the 15th. Based on the past twelve months of reports, the two companies’ revenue totals more than $685 million.
Both of the companies have had international expansion strategies in place well beyond the Canadian market, with an eye focused on the European and United States markets. In Germany, Aphria already has a well-established footprint for distribution and Tilray owns a production facility in Portugal.
About two weeks ago, Aphria closed on their $300 million acquisition of Sweetwater Brewing Company, one of the largest independent craft brewers in the United States. Sweetwater is well known for their 420 Extra Pale Ale, their cannabis-curious lifestyle brands and their music festivals.
Once the Aphria/Tilray merger is finalized, the company will have offices in New York, Seattle, Toronto, Leamington, Vancouver Island, Portugal and in Germany. The new combined company will do business under the Tilray name with shares trading on NASDAQ under ticker symbol “TLRY”.
Aphria’s current chairman and CEO, Irwin Simon, will be the chairman and CEO of the combined company, Tilray. “We are bringing together two world-class companies that share a culture of innovation, brand development and cultivation to enhance our Canadian, U.S., and international scale as we pursue opportunities for accelerated growth with the strength and flexibility of our balance sheet and access to capital,” says Simon. “Our highly complementary businesses create a combined company with a leading branded product portfolio, including the most comprehensive Cannabis 2.0 product offerings for patients and consumers, along with significant synergies across our operations in Canada, Europe and the United States. Our business combination with Tilray aligns with our strategic focus and emphasis on our highest return priorities as we strive to generate value for all stakeholders.”
Cannabis infused products manufacturing is quickly becoming a massive new market. With companies producing everything from gummies to lotions, there is a lot of room for growth as consumer data is showing a larger shift away from smokable products to ingestible or infused products.
This is the fifth and final article in a series where we interview leaders in the national infused products market. In this final piece, we talk with Lisa McClung, CEO, and Glenn Armstrong, senior advisor at Coda Signature. Lisa got started with Coda in 2019 as a board member after transitioning from an executive role at Wrigley. She now heads up the company as CEO and President. Glenn has deep experience in product development and innovation with brands such as General Mills, Whirlpool and Wrigley.
Aaron Green: Okay, great let’s get started here. So we’ll start with Lisa. How did you get involved at Coda?
Lisa McClung: I was lucky. Based on my experience, I was originally asked to be on the board of Coda. I’ve served on nine company boards in addition to my career as an executive at General Electric and at the Wrigley Company where I was heavily involved with innovation. The Board then asked me to consider stepping in as CEO after I’d been working there for six months. I was just overwhelmingly complimented that they considered me and I feel incredibly lucky to be here.
Aaron:Okay, great. Glenn, how did you get involved in Coda?
Glenn Armstrong: We’ve known each other for a long time at Wrigley. I was in innovation for the confectionery side and worked very closely with Lisa. When she became a board member, she asked me to do some advising for her. I’m new to the cannabis industry so, I was really excited about doing something different. When Lisa became CEO, she asked me if I would help her.
Aaron: How do you think about differentiating in the market?
Glenn: I spent 90% of my career on the innovation side working with companies like General Mills, Quaker Oats and Amway. When I think about how to differentiate almost any company I always focus on innovation. In the cannabis industry, everybody’s got gummies and chocolates but you’ll hear people talking about “gummies are going away.” No, you’ve just got to innovate, right? It’s like the carrot peeler from 20 years ago. It used to sell for about 25 cents, and it was all steel and now they sell for $10.99. Who would have known?
I believe anything can be innovative. When I looked at the gummies I asked, “what we learned at Wrigley, can we bring into Coda that currently is not in this industry?” Think about various gums and how they can change flavors over time like Juicy Fruit which dissipates really quickly and that’s just how the flavor is.
Or, there are other ways like spearmint. You can get an initial boost and then extend that flavor by encapsulations. I don’t see much of that in the cannabis industry. It’s just taking what’s out there from flavor companies that people like and getting them into this market.
Aaron: Awesome. Do you have any particular technologies or work or products from other industries that really interest you?
Glenn: I would say it’s going to be from the pharmaceutical industry. You think about THC and CBD being so hydrophobic. With chocolate, it’s not such a hard thing to get into. If you try to get those kinds of compounds into aqueous solutions though it can be a challenge, the drug industry has been doing it for years! So, to me, delving into some of their patents and some of their ideas, that’s one of the most powerful industries I see where we could utilize their technologies to advance the industry. I expect big pharma to get into this. We can start looking at what they’re doing that we can leverage quickly to get into Coda products.
Lisa: We’re not necessarily a pharmaceutical brand, but we are committed to helping people live and feel better. It really is about how you weave cannabis into everyday life?
We have a platform of very indulgent products, which is our chocolates ranging from truffles to bars. We also are building our non-chocolate portfolio to include other ways to enjoy cannabis in their daily life. And then to Glenn’s point, I think there’s ideas and technologies from the pharmaceutical area, there’s also things that have been in the food industry for years that provides sensations and experiences.
I think part of our goal is “how many of the five senses can we touch from people in creating product?” The feel of something in your mouth heating, cooling. Not just the psychoactive aspect of it, but the complete end-to-end experience.
These are all dynamics of us delivering the “live and the feel” piece of it. Then people can either use them from a lifestyle perspective for enjoyment, or a medical perspective. Our job is to provide consumers choices and options that provide those type of experiences.
Glenn: If you have a product that’s supposed to “reduce anxiety” why not start with the slight warming of the mouth? Something that feels calming long before the THC or CBD kicks in? Then have a flavor come up that just feels warm and comfortable. By combining all five senses, you have a product that really does something for your consumer.
Aaron: Thanks for that! What’s your process for creating a new product at Coda?
Lisa: Well, I think everybody talks about brainstorming sessions like innovation is something that just pops up. I think innovation has three legs to it. One is really customer-driven. So, we have to produce products that help our retailers make money, and that deliver really good experiences to consumers that we jointly serve.
The second piece of it is thinking about the discipline of innovation. So, when we make a product, what technologies do we bring to bear, can we scale them, and can we produce them at the right price point and delivery?
Then the last piece is the fun piece, trying to listen to what is and isn’t being said in the market to really try to be a solutions company.
We spend a lot of time listening and watching the market to figure out where we can anticipate things. We used to call it “problem detection” at Wrigley.
One project that Glen and I worked on was a mint that was designed really around adult usage in more professional situations. So, meaning the shape of the mint needs to be tucked in your cheeks so you couldn’t see it. And the packaging of it was something you could surreptitiously pop underneath the desk because we were designing it for people to use as really a business tool. You don’t think of mints as a business tool, but they really are, they give you more confidence with breath-freshening and you don’t necessarily want to hold that out with everybody else.
Some problems are about how to make a product more fun with our fruit. I can put pineapple jalapeño in my mouth and have a literal popping experience, which adds to my enjoyment of that experience.
The last piece is not to do too many products. One of the things that I think of in cannabis is that everybody’s still learning. It’s such a wide-open space, in some cases, that you also have to kind of pick what you do well. So, sticking close to our brand and what we stand for is also something that we’re trying to do. We’ve actually pulled in our SKUs recently and are trying to focus on a platform of indulgent experiences and of lifestyle products. We try not to do everything that we see out in the market and focus only on the things that we do well that solve problems for our consumers.
Glenn: From my perspective — I am not a big process person — I think the best way to do it is to say, “okay, we’ve got these products. We could look at technology, we could look at something else, but let’s just go scour what’s out there. And let’s get outside of our industry.” Look outside your own game, and see what you can use.
Discovering how to use these technologies in a gummy or chocolate as opposed to just drugs isn’t rocket science. My biggest avenue is looking outside and finding what you can apply as opposed to trying to reinvent everything.
Aaron: We’ve focused on the front end of innovation. Can you articulate on the back-end how that moves into product development, manufacturing and commercial launch?
Lisa: We have a new product pipeline with a Stage-Gate process where we will have a number of ideas and whittle them down on certain criteria.
Sometimes the ideas start with the technology and not the market. Glenn will find something and say, “Hey, this is going on, should we be thinking about this in cannabis?” It allows our each of our teams to come up with how they can make it work.
Then, as that product passes through the next stage-gate, we’re looking at the actual economics of the product, and how it fits relative to our other products all while we’re getting consumer input.
We get to that point in the process when we start trialing with consumers to help decide. And sometimes you get the best idea in the world, and then it’s not going to work so in some cases so you put it back in the pantry.
I never like to say that we don’t take an idea forward, even products that we may have taken off the market, we say “we freeze products, we don’t cut products!” because our goal is to have options. Our discipline is around a Stage-Gate process tied to our business goals and objectives. It’s also about playing around with concepts and seeing what materializes.
Glenn: There is this whole notion of a process, there’s a Stage-Gate, but before that, it’s a lot of playing around. What Lisa and I’ve recently worked on was making innovation a way of life so that every time you see something, you say something.
“We don’t think of innovation solely as the next flavor that’s going to be on the shelf.”We always gave people permission to play in the web.The reason brainstorming sessions don’t tend to work, is we expect people to become innovative in these next five hours.
So, if you think of innovation as a way of life, then it becomes what you do daily, and you look at things differently. I like to say when you’re driving home, go a different route, because you never know what you’re going to see. When you get out of that habitual mindset, you’ll think about your business differently, almost naturally. Innovation — this way of life — is one of our buzzwords.
Lisa: I think building that innovative culture is a responsibility, but also a challenge for a company like Coda. I mean, we’re not new. We’ve been around five, six years and we have some of the leading chocolate bars out there. We’re known for flavor systems.
Where our goal is to create a culture of innovation, you get these little pockets of creativity and innovation, and then it starts snowballing. You build on it, get people excited about it, and move it forward. That’s how everybody gets involved in innovation.
One of the goals of that pipeline process is to combine inspiration and discipline. But you don’t just want to be innovative in the next flavor. That isn’t doing enough for our consumers. We’ve educated them on the potential flavors could bring. But now we really want to be much more innovative across the board and see what kind of culture of innovation Coda can do.
We’re looking at the packaging, how we interact with retailers, how we use digital messaging to support our retailers and support our products. We don’t think of innovation solely as the next flavor that’s going to be on the shelf.
Aaron: From a supply chain perspective, how do you go about sourcing ingredients?
Lisa: We have some wonderful partners that have been with us at Coda. People that bring us chocolate from other parts of the earth.
We continue to keep building our ecosystem of partners. We look at different flavor houses and different food type researchers to be partners with us to broaden our ecosystem. It’s something that’s very much top of mind, even more so during COVID, because we’re feeling very fragile about our supply chains.
Glenn: Yeah, I think Lisa, that’s one thing you and I bring, not only to Coda, but I think to the cannabis industry, is the whole CPG discipline of how we look at suppliers and procurement. We need to go out there find some smaller flavor labs with incredibly creative folks.
I think the whole notion of expanding the supplier and vendor base, is pretty unique in this industry and that’s one of the strengths we bring to Coda.
Lisa: Our goal is to really create an ecosystem of different suppliers. I just think that that’s something other industries — you talked about pharmaceuticals earlier — have done. Cannabis is just starting to get there, but that’s where you get exponential opportunities.
We’re really looking at cross-functional and interdisciplinary teams with outside partners. Cannabis is at the stage now where I think it’s looking for more sophisticated technologies and new ways of deploying. We’re also really interested, as Glenn said, in some of the younger, more entrepreneurial firms that want to possibly expand their reach into cannabis as well.
Aaron: Okay, great. So my next question is can you give me an example of a challenge that you run into frequently? And this can be either a cannabis challenge or a business challenge?
Lisa: I think one of the challenges that cannabis faces in general is educating consumers about our market. One of the opportunities we have is to bring people into the market. We’re at the same time developing products for people who are in the cannabis space and are active users and have varying degrees of understanding of how they’re using the category in their daily lives.
We’re also trying to create products and education to invite people into the cannabis market. That’s a different challenge than if you’ve had an Oreo cookie, and people kind of understand cookies. They understand Oreos, and then they understand organic Oreos and all the other permutations of two chocolate cookies with a vanilla thing in between. Our goal is to expand the ability for people to access cannabis in their lives.
That is a very unique business problem. And it does represent a bit of a screen, are you going to do some of your products for more sophisticated users and others for less sophisticated users? Cannabis has consumers that have been taught essentially to think about milligrams; there’s one of the key components of choice. People will look at the product and flavor, and then they look at the milligrams and the price point.
That’s very unique to what we would find on CPG. You don’t necessarily look at dollars per milligram when you buy a cookie. So, if you’re trying to make a premium product with premium flavors, how do you say, “Well, yeah, there’s dollars per milligram, but this product has all these other technologies to create the warming or whatever.” “Innovation in products and new categories is critical to get the industry beyond common confections.”
So you kind of have a dual issue. You’re trying to get people educated on a new category and how they use it. But the education of the consumer in terms of the potential and the possibilities that they can access is going to be very important.
Aaron: What trends are you following in the industry?
Lisa: Beyond paying close attention to legalization progress across the country and monitoring how states are setting up their regulatory standards, we’re focused on which consumer demographics are incorporating cannabis into their wellness and self-care practices—and how Coda Signature products fit into their daily routines.
Glenn: For edibles, “fast acting” is probably beyond a trend and it will be interesting to see where this nets out. Consumers appear to be balking at the slightly higher price point for fast-acting gummies, but there may be a market for after-dinner dessert items. In other trends, use of minor cannabinoids and terpenes for specific benefits appears to be a solid consumer need, but this is going to require solid science to see if these products truly work. Innovation in products and new categories is critical to get the industry beyond common confections.
Aaron: Okay great! Lastly, what would you like to learn more about?
Lisa: We’re fascinated by the technological advances being made in the cannabis industry, and how those achievements may enrich the consumer experience moving forward. We’re also interested in the growing body of scientific research around how cannabis products can enhance people’s health and wellness.
Glenn: U.S. legalization and the constant changes in regulations require someone to distill the information and do a weekly report on changes.
Aaron: Thank you both! That concludes the interview!
The Center for Food Safety is a non-profit public interest and environmental advocacy organization. They work to protect public health and the environment by helping curb the use of harmful food production and promoting organic production and other sustainable agriculture practices. Earlier this month, the Center for Food Safety launched a new campaign in the hemp and CBD space: their Hemp CBD Scorecard evaluates some of the widely-known hemp and CBD companies on their production and processing methods, testing protocols and transparency to consumers.
Medterra is a CBD products company founded in 2017. They are one of a handful of companies to receive an ‘A’ letter grade on the Center for Food Safety’s Hemp CBD Scorecard. Jay Hartenbach, CEO of Medterra, says 3rd party testing, validation and strict quality standards are the key to earning recognition from organizations like the Center for Food Safety. We sat down with Jay to hear more about how his company is leading the industry in the space of self-regulation, transparency and sustainability.
Cannabis Industry Journal: Tell us a bit about the history of Medterra – how did it become the brand it is today?
Jay Hartenbach: I’ve always had a passion for entrepreneurship and science. At Duke, I focused on Engineering Management and earned my B.S. in Biomedical Engineering from Miami University in 2012.
In 2016, I received a call from my former college mate J.P. Larsen who pitched me the idea to start a CBD company. After recognizing the potential of CBD to help a variety of issues, we set up shop in my living room and started building out Medterra in 2017.
With this growing need for trusted products without THC at affordable pricing, our startup of two expanded to nearly 100 employees in less than three years. We currently operate out of our headquarters in Irvine, California as one of today’s leading global CBD brands.
From the beginning, we recognized the power of CBD to help all walks of life. With so many companies prioritizing profits over their consumers, we saw an opportunity to stand out with world class customer service, affordable pricing, and efficacious amounts of CBD.
These priorities have remained unchanged for us as a company and it makes decision making easy for us. If you focus on prioritizing your customers, there is not any ability to cut corners or be content with the status quo of the industry. Consumers know they can trust the Medterra brand and we are continually pushing ourselves to make more effective products.
CIJ: Tell us about your quality standards – what do you do to ensure safety, quality and transparency with consumers?
Jay: We are consistently recognized in the industry for adhering to only the strictest standards for quality. From cultivation to finished product, we test our products multiple times to ensure quality standards are met and there are no unwanted compounds. Medterra CBD has always committed itself to manufacturing CBD products consumers can feel confident in.
In addition, Medterra is proud to be one the first 13 CBD companies to be given the U.S. Hemp Authority’s Certification Seal. This is currently the most stringent 3rd party certification in Hemp. With audits on cultivation, manufacturing and final products, the US Hemp Authority Seal signifies that we as a company meet the highest standards in the industry.
Furthermore, our partnership with Baylor College of Medicine was the first of its kind. Focused on testing both current products as well as validating new products, our partnership with Baylor allows us to provide the most efficacious products to our consumers.
CIJ: Tell us about your farming, processing and testing practices.
Jay: Medterra provides customers with true seed-to-sale purchases. Our industrial hemp is grown and extracted in accordance with the strict guidelines of the Kentucky Department of Agriculture. Each and every product that leaves the facility must be third-party tested to ensure consistency, quality and safety.
CIJ: How do you think the Hemp CBD Scorecard helps move the industry forward?
Jay: Given the unclear federal regulatory landscape, this is an important step in the right direction for CBD companies, because it allows consumers to be confident in the products they use. The more 3rd party testing and verification of CBD companies the better. With these presented to the public, CBD companies are less likely to cut corners and are forced to act in their consumer’s best interest. The Hemp CBD Scorecard helps move the industry forward because it forces accountability.
CIJ: How do you think the hemp/CBD industry will evolve with respect to product safety and transparency without government regulation?
Jay: We at Medterra will continue to go the extra mile and take steps to ensure consumers are getting only quality ingredients. Through these efforts, we hope to remove the stigma associated with cannabis cultivation and educate consumers on the efficacy and sustainability of hemp-derived CBD.
Ladyjane Branding and Wolfe Research & Consulting are leading an ambitious study to explore and document the experiences of women working in the cannabis market. Women in Cannabis: A Living History officially kicks off on December 10th at the National Women of Cannabis Conference.
Jennifer Whetzel, founder of Ladyjane Branding, says this is an opportunity for women to tell their stories about their experience working in the cannabis industry. Women can participate in the study by going to womenincannabis.study and sign up to take the survey. You can also sign up to be a sponsor or partner of the study at that website. Sponsors will get access to content like press releases and the opportunity to incorporate the study’s findings in their messaging. We invite our readers to participate, sponsor, partner, share and encourage friends to take the survey.
With beta testing starting the week of November 18th, we caught up with Jennifer Whetzel to talk about why she decided to start this project, what they expect to learn from it and what the future may hold for professional women in the cannabis industry.
Cannabis Industry Journal: Can you tell us a bit about your background and how you came into the cannabis industry?
Jennifer Whetzel: My entrance into the cannabis industry was certainly a culmination of my personal experience and professional journey.
After moving to Maine, I became a medical user to ease symptoms of an immune and an auto-immune disorder. When I sought out treatment for PTSD, I found that a combination of cannabis, therapy, meditation and brain retraining was the most helpful and healthy solution.
This course of treatment for PTSD was life-changing as it allowed me to resolve symptoms from all of my medical issues, and I wanted to find a way to give back to the community that supported me. I had been working in marketing for over 25 years and realized I had quite the diverse professional background. My experience included retail merchandising and operations, public relations on a military base, research design and strategy for ad agencies, new product development and launch for animal health companies, and experiential marketing strategy and design. I’ve been lucky enough to work with small companies and Fortune 500’s which has led to finding solutions in unexpected places.
When pairing my knowledge and skills with the cannabis community, I realized I could make an impact by advising new entrepreneurs who needed help making their brands stand out. That’s how Ladyjane Branding was born.
CIJ: Can you give us an overview of the Women in Cannabis Study?
Jennifer: The Women in Cannabis study aims to understand how women are faring in the cannabis industry and whether we are doing enough to support women, their careers and their professional goals. It’s well documented that women in corporate America do not have the same opportunities for career advancement as men, holding fewer executive or board positions, having fewer opportunities for mentorship, sponsorship and career progression.
The study is comprehensive, with more than 80 quantitative questions along with qualitative telephone and video interviews of female-identifying professionals working in the cannabis industry – whether they are involved with cannabis, CBD or hemp. Through monthly infographics, video summaries, quarterly in-depth themed reports and a comprehensive year-end report, we will be telling the stories of women’s professional experiences in cannabis with the goal of transforming the industry into one where women can succeed and thrive.
Painting a picture of the women in cannabis, and understanding them as a group, we look at demographics to explore their diversity and reveal whether personality differences may affect their experiences, as well as experience with stigmas regarding cannabis use and working in the industry.
To understand professional trajectories and roadblocks on a path to success, we dive into work history, reasons for entering the cannabis space and the barriers they have faced on their journey. We explore opportunities for mentorship, support and leadership, the types of harassment, discrimination and disrespect they’ve experienced and how that may have impeded their careers.
We’d like to understand how (or whether) women find balance in their personal and professional lives, what sacrifices they’ve had to make for a career in cannabis, as well as best practices for women to foster success.
CIJ: Why did you decide to take on this endeavor and lead the work on this study?
Jennifer: While there are numerous studies looking at how women fare in corporate America, we found that there’s a lack of a recent and comprehensive deep dive into this topic specifically for cannabis. As an emerging industry, we have a unique opportunity to make valuable recommendations to potentially increase inclusivity for women in this early stage of industry culture before it becomes too entrenched. Our goal is to ensure we have the hard numbers to document a baseline now, then follow-up over time to understand how the industry changes.
By surveying and speaking to women in the industry, and understanding where strengths and weaknesses in the industry lie, we can make recommendations to improve the lived experience for women working in this industry.
The only way to make improvements to a system is to understand it.
CIJ: How do you think we can create a more inclusive industry?
Jennifer: I think it begins with an understanding of where we are starting – we don’t know what we don’t know. Being in the cannabis industry, we often hear the argument that anecdotes are not data. Just like we need the scientific data to prove efficacy for medicine, we need the data that shows the hard numbers about diversity and inclusion, the stigma and shame of cannabis use or working in this industry, about sexual harassment, disrespect and bullying.
This study is about generating information and creating knowledge on this issue so we can determine the education, policies, procedures and actionable recommendations that can help make the industry a welcoming space for everyone.
One of the best ways to create a more inclusive industry is through education.
CIJ: What hurdles do women face in the cannabis industry? How is that different from other, more established industries?
Jennifer: As we review research results from more established industries, it seems clear that women face similar hurdles in cannabis. Various studies have shown that working women are faced with unequal pay, fewer opportunities for mentorship or sponsorship, as well as discrimination and disrespect. The issues for female entrepreneurs are even greater as women are significantly less likely to receive venture capital funding, which certainly speaks to experience in the cannabis industry.
Because there’s little data specifically focused on the cannabis industry, we are just guessing. This study will provide us those answers.
CIJ: Looking ahead, how do you think women will fare in the evolution of the cannabis market?
Jennifer: I’d like to think that if we are all purposeful and intentional about creating an equitable, inclusive, and representational industry, that women will fare significantly better than they have in other industries typically dominated by men. If that can happen, everyone will feel welcome and respected, and it will no longer be surprising news when a woman is promoted to CEO or becomes a successful founder.
As Europe swooned under record-breaking heat this summer, the cannabis industry also found itself in a rather existential hot seat.
The complete meltdown at CannTrust has yet to reach a conclusion. Yes, a few jobs have been lost. However, a greater question is in the room as criminal investigatory and financial regulatory agencies on both sides of the US-Canada border (plus in Europe) are getting involved.
As events have shown, there is a great, big, green elephant in the room that is now commanding attention. Beyond CannTrust, how widespread were these problematic practices? And who so far has watched, participated, if not profited, and so far, said nothing?
Who, What, Where?
The first name in the room? Canopy Growth.
Why the immediate association? Bruce Linton, according to news reports, was fired as CEO by his board the same day, July 3, 2019, that CannTrust received its first cease and desist notice from Health Canada.
Further, there is a remarkable similarity in not only problematic practices, but timing between the two companies. This may also indicate that Canopy’s board believed that Linton’s behaviour was uncomfortably close to executive misdeeds at CannTrust. Not to mention, this was not the first scandal that Linton had been anywhere close to around acquisition time. See the Mettrum pesticide debacle, that also broke right around the time Canopy purchased the company in late 2016 as well as the purchase of MedCann GmbH in Germany.
Reorg also appears to be underway in Europe as well. As of August, Paul Steckler has been brought in as “Managing Director Europe” and is now based in Frankfurt. Given the company’s history of “co-ceo’ing” Linton out the door, is more change to come?
Video showing dead plants at Canopy’s BC facility surfaced. Worse, according to the chatter online at least, this was the second “crop failure” at the facility in British Columbia. Even more apparently damning? This all occurred during the same time period that the second round of lawsuits against the reconstituted German cultivation bid surfaced.
Canopy in turn issued a statement that this destruction was not caused by company incompetence but rather a delay in licensing procedures from Health Canada. Despite lingering questions of course, about why a company would even start cultivation in an unlicensed space, not once but apparently twice. And further, what was the real impact of the destruction on the company’s bottom line?
Seen within the context of other events, it certainly poses an interesting question, particularly, in hindsight.
Canopy, which made the finals in the first German cultivation bid, was dropped in the second round – and further, apparently right as the news hit about the BC facility. Further, no matter the real reason behind the same, Canopy clearly had an issue with accounting for crops right as Canadian recreational reform was coming online and right as the second German cultivation bid was delayed by further legal action last fall.
Has Nobody Seen This Coming?
In this case, the answer is that many people have seen the writing on the wall for some time. At least in Germany, the response in general has been caution. To put this in true international perspective, these events occurred against a backdrop of the first increase in product over the border with Holland via a first-of-its kind agreement between the German health ministry and Dutch authorities. Followed just before the CannTrust scandal hit, with the announcement that the amount would be raised a second time.
German health authorities, at least, seem doubtful that Canadian companies can provide enough regulated product. Even by import. The Deutsche Börse has put the entire public Canadian and American cannabis sector under special watch since last summer.
By the turn of 2019, Canopy had announced its expansion into the UK (after entering the Danish market itself early last year) and New York state.
Yet less than two weeks later, Canopy announced not new cultivation facilities in Europe, but plans to buy Bionorica, the established German manufacturer of dronabinol – the widely despised (at least by those who have only this option) synthetic that is in fact, prescribed to two thirds of Germany’s roughly 50,000 cannabis patients.
By August 2019, right after the Canopy Acreage deal was approved by shareholders, Canopy announced it had lost just over $1 billion in the last three months.
Or, to put this in perspective, 20% of the total investment from Constellation about one year ago.
What Happened At CannTrust And How Do Events Line Up?
The current scandal is not the first at CannTrust either. In November 2017, CannTrust was warned by Health Canada for changing its process for creating cannabis oil without submitting the required paperwork. By March of last year however, the company was able to successfully list on the Toronto stock exchange.
Peter Aceto arrived at CannTrust as the new CEO on October 1 last year along with new board member John Kaken at the end of the month. Several days later the company also announced that it too, like other major cannabis companies including Canopy, was talking to “beverage companies.” It was around this time that illegal growing at CannTrust apparently commenced. Six weeks later, the company announces its intent to also list on the NYSE. Two days later, both the CEO and chair of the board were notified of the grow and chose not to stop it.
Apparently, their decision was even unchanged after the video and resulting online outrage about the same over the destroyed crops at the Canopy facility in BC surfaced online.
On May 10, just over a week after the Bioronica purchase in Germany, the first inklings of a scandal began to hit CannTrust in Canada. A whisteblower inside the company quit after sending a mass email to all employees about his concerns. Four days later, the company announced the successful completion of their next round of financing, and further that they had raised 25.5 million more than they hoped.
Six weeks later, on June 14, Health Canada received its warning about discrepancies at CannTrust. The question is, why did it take so long?
Where Does This Get Interesting?
The strange thing about the comparisons between CannTrust and Canopy, beyond similarities of specific events and failings, is of course their timing. That also seems to have been apparent at least to board members at Canopy – if not a cause for alarm amongst shareholders themselves. One week after Health Canada received its complaint about CannTrust, shareholders voted to approve the Canopy-Acreage merger, on June 21.
Yet eight days after that, as Health Canada issued an order to cease distribution to CannTrust, the Canopy board fired Bruce Linton.
One week after that, the Danish recipient of CannTrust’s product, also announced that they were halting distribution in Europe. By the end of August, Danish authorities were raising alarms about yet another problem – namely that they do not trust CannTrust’s assurances about delivery of pesticide-free product.
Is this coincidence or something else?
If like Danish authorities did in late August 2019, calling for a systematic overhaul of their own budding cannabis ecosystem (where both Canadian companies operate), the patterns and similarities here may prove more than that. Sit tight for at least a fall of more questions, if not investigations.
Beyond one giant cannabis conspiracy theory, in other words, the problems, behaviour and response of top executives at some of the largest companies in the business appear to be generating widespread calls – from not only regulators, but from whistle blowers and management from within the industry itself – for some serious, regulatory and even internal company overhauls. Internationally.
And further on a fairly existential basis.
EDITOR’S NOTE: CIJ reached out to Canopy Growth’s European HQ for comment by email. None was returned.
Correction: This article has been updated to show that the Danish recipient of Canntrust’s product announced they were halting distribution one week after Bruce Linton’s firing, not one day.
Read the glossy website or encounter their expensive marketing materials and lush swag at any upscale international cannabis business conference these days and you get a certain kind of impression. The new, modernist, chic European HQ in central Frankfurt, for example, with its floor-to-ceiling windows and breath-taking view of the city, river and mountains, continues to give that perspective far from home.The company has been at the forefront of the Canadian cannabis industry since 2013 and has subsequently weathered several mergers, buyouts and creative partnerships of all kinds.
But what’s of great interest about Canopy is that its highly slick corporate image is backed up by a solid performance elsewhere to date– and on a number of important, and globally impactful levels. Further, the company’s willingness to think strategically, globally, and take calculated, well-timed risks at the same time proves to be effective.
The Canadian Beginnings
The company has been at the forefront of the Canadian cannabis industry since 2013 and has subsequently weathered several mergers, buyouts and creative partnerships of all kinds. In the process it has also made financial history in the cannabis industry, becoming the first publicly listed cannabis company in the world a year after its founding.
So much of its iconic corporate history is in fact, ironically fading in the rapid birth of the full on recreational market at home. However, here is the elevator pitch. Born as Tweed, in 2013, in an abandoned former Hershey chocolate plant and the recipient of one of Canada’s first medical cultivation licenses, the company rapidly expanded with increased market access that reform brought. Inevitably, its success also spawned one of its closest competitors (Cannabis Wheaton Income Corp) after co-founder Chuck Rifici was ousted by a unanimous vote of the Canopy board.
In 2018, Canopy Growth still maintains its reputation as the first Canadian cannabis unicorn, even though its stock price is just half that of close competitor, Tilray.
In Canada, the company has long expanded adroitly beyond its central HQ with strategic partnerships and buyouts that range the gamut of grow and branding opportunities that are becoming increasingly as mainstream as, well, beer. These days, Canopy is well-poised to take advantage of the shifting Canadian regulatory landscape on several fronts.
The first is undeniably medical. The company has made patient access a cornerstone of its continuing market development strategy. In fact, current CEO and original cofounder, Bruce Linton, has recently told the press that in his view the medical market globally is the company’s first and most profitable focus.
No matter how many beer companies come calling. And that is also one of the company’s more notable, if not newsworthy accomplishments.
However it is on the international side that the company has really distinguished itself. That starts with the early (relatively speaking) and active interest in what was going on far from Canadian shores. Initially in Europe (but not limited to it). And even more centrally, how and where the company expanded its global medical reach.Canopy has spread its influence widely throughout Europe already
That started, from the Canopy perspective, with the decision to buy the small German GmbH called MedCann (now Spectrum Cannabis, the global medical brand of Canopy). Located just south of Frankfurt, an international but small team of globally experienced entrepreneurs managed to obtain the first import license for medical flower from Canada into Germany in the summer of 2016. Guided by the industry knowledge and business savvy if not entrepreneurial zeal that so often leads to naught, Pierre Debs and team faced a market still sceptical of medicinal cannabis domestically, and the burden of being “first.” Canopy was not yet in Europe, but they had more ready access to the market and capital. The Canopy buyout of MedCann was accomplished on December 12, 2016, six months before the first iteration of the German cultivation bid was announced. Canopy later announced that it had become one of the top ten finalists in the first iteration of the now restarted German cultivation bid.
Beyond Germany however, this unique team with deep local and global knowledge also began an immediate expansion policy in Europe and beyond that is still unfolding. Apparently in similar strategy adopted at home in the Canadian provinces, Canopy has spread its influence widely throughout Europe already. With an enormous supply contract from Spain’s Alcaliber and operations in Denmark, the Czech Republic, Poland, Italy and a few more (still currently unnamed) operations rolling out any day, the company is clearly building a solid, strategically dispersed infrastructure that reaches far beyond Europe, with global impact and influence.
Exhibit A? In April of this year, the company launched Spectrum Australia with support from the Victorian government.
The biggest controversy facing the company so far, albeit indirectly, involves pesticides. This issue occurred during the acquisition of an outside company called Mettrum. In other words, Canopy inherited the production liabilities of a purchased company. The acquisition, however, which passed the buck to Canopy to fix, was actually an opportunity for Canopy to implement its own high internal production and quality controls throughout Mettrum facilities.
This was not inexpensive or of small impact (it affected 21,000 medical users). In addition to taking a leadership role in addressing their acquisition’s production issues, CEO Linton publicly apologized to affected patients.
This collection of leaders in the European cannabis market is by no means completely neutral. Much less comprehensive. It is however, German and European centric, because these people, by definition and geography, are now sitting at the nexus of a global, and even within Europe, international industry. Europe for that reason, will be the place, and for some time, where the global cannabis industry comes to make deals across borders, meet the high levels of compliance required here that is setting global standards and push the medical revolution forward for (at least) the next five to ten years.
For that reason, the people listed below carry influence far beyond one country or even region, by definition. But they are also not the only people redefining an industry.
Most notably, of course by their exclusion, are women, although there are some exceptions to that and women are increasingly establishing their place at high executive levels although not yet founder or cofounder or, auf Deutsch, Geschäftsfüherin– (Managing Director) at any of the establishing global companies with European presence. That said, they are beginning to make their appearance in every place and career path within the industry.
Movers and Shakers
Dr. Pierre Debs, Ph.D. An American expat with a German Ph.D., and twenty five plus years’ experience in stem cell research, including endocannabinoid system function. Debs is also the often uncredited individual who opened the current medical market in Germany in particular, but with immediate impact throughout Europe. As the scrappy start up MedCann, Debs, his cofounders and a skeleton team based just south of Frankfurt, not only got into the game first, they beat other established companies to obtain the first import license for Canadian flower in the summer of 2016. Including and most notably Tilray. MedCann GmbH at that point became the only other company besides Bedrocan, the perennial Dutch provider for the last twenty years to be able to provide medicinal, GMP-certified flower to the German market. That market distinction of course, did not last long as other companies quickly jumped into the ring but as the medical brand of Canopy, Debs has continued to lead industry development across Europe. Today, as the Geschäftsführerof Spektrum Cannabis GmbH (as MedCann was renamed after its purchase by Canopy sometime in Q4 2016-Q1 2017) and as Canopy Growth Corp Managing Director Europe, Debs has not only established but currently oversees operations in multiple European countries as Canopy Cannabis expands its global medical brand. From, it should also be added, its swanky new digs in central Frankfurt.
Tjalling Erkelens, Bedrocan founder and CEO. Bedrocan is the legacy cannabis player here in a game that is rapidly changing as it expands. The first exporter of medical cannabis in the world, the family owned company currently produces five different cannabis strains bound for the medical market, and is expected to be the beneficiary of the newly expanded import quota into Germany from Holland for medical grade flower, as well as place well in the German cultivation bid.
Gerhard Müller. The unassuming Chair of the Audit Committee of Wayland Group, the cannabis company formerly known as Maricann. Müller is less often in the English-speaking press than Ben Ward, company CEO. However, Müller is a force to be reckoned with as Wayland begins to unfold its usually understated strategy in Germany and Europe from its Munich HQ base. Müller is the former head of Ernst and Young’s GSA Tech Practice, also adding household names like Birgit Homburger and Christopher Peterka to Wayland’s German Advisory Board. Also of note is GM for Wayland Germany Josef Späth now tasked with bringing his connections and previous experience as a top, internationally experienced clean tech architect and engineer to the build out of Wayland’s infrastructure. This includes previous work with NASA Jet Propulsion Lab alumni to develop new techniques for harvesting and processing of cannabis. German ingenuity and engineering at its best!
Patrick Hoffmann, CEO of Aurora Deutschland (formerly Pedianos). This firm too, was one of the early start-ups to get into the distribution and cultivation game and so far they have proven to be adept at navigating the complex path to winning cultivation rights. Aurora placed in the top ten finalists for the last German cultivation bid. As Pedianos, the firm won the first distribution and cultivation deal for Italy, sourced via Berlin. They have already proven to be highly skilled at finding market advantages in an exploding European market puzzle.
David Henn, CEO of Cannamedical Pharma. The millennial at the front of the cannabis import and distribution craze in Germany, founded his start up in November 2016. Henn then obtained one of the first issued licenses for trading and ex-im of medical cannabis just as the law changed in Germany officially to mandate insurance coverage of medical cannabis by prescription. Since then, the fiercely independent entrepreneur has turned down multiple acquisition offers from companies in Canada, Israel and Australia. The Cologne-based company supplies a growing network of German pharmacies and entered into off-take agreements with major companies in Europe, Canada and Australia. Bolstered by its cash flow in the existing distribution business, Cannamedical is continually expanding and has already established European subsidiaries that are in the progress of obtaining additional production and distribution licenses for the company.
Peter Homburg. Partner, Denton’s Law Firm. Peter has already had an established career as a high-powered partner and the head of the firm’s Life Sciences Division. Yet like many people of different paths and persuasions, he began to explore the world of the legal end of the business several years ago. These days, albeit based in Frankfurt, he has helped establish the firm’s reputation internationally as a leading law firm in the cannabis space.
Rob Reid. Reid wears several influential hats based out of his offices in London. As the director of publicly listed, SOL Investments Corp (formerly Scythian), he invests in the U.S.-based cannabis industry. He is also the co-founder of European Cannabis Holdings (ECH), which is investing in a portfolio of private medical cannabis companies on this side of the pond. He is also the co-founder of Prohibition Partners, the increasingly prolific market intelligence and consultancy firm, and Cannabis Europa, a conference and networking platform. Finally, he is involved in a number of cultivation JVs around the world.
Marla Luther. As co-director for Tilray Europe (along with Sean Carney) and based in Berlin, Marla has the most senior leadership title of any woman in the cultivation and distribution industry in Europe. She has also been in the position for the last several years.
Alex Rogers. As the founder of the International Cannabis Business Conference (ICBC), Alex has established perhaps the first truly international cannabis conference brand catering to the professional end of the regulated industry but retaining the soul of the advocacy movement. The Berlin conference going into its third year in 2019, literally reset the standards if not stage for the next upgrade of the industry conference concept. Within a year of its first international conference in Berlin, Alex and his team had also established conferences in Canada and are establishing the B2B conference of Spannabis under their rubric in Barcelona as of next year.
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